Ebook International human resource management (3rd edition) Part 2

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Chapter 7

Cross-border mergers and acquisitions
Tony Edwards and Chris Rees
Key aims
The aims of this chapter are to:
●

examine the pressures on firms to integrate HR policies in the two parties to the merger,
focusing on the role of the nationality of the parent firm in shaping this process;

●

consider the features of host countries which influence the nature of restructuring in the
post-merger period;

●

highlight the ‘political’ dimension to cross-border M&As, including the role of a range of
groups within a firm who will seek to influence the character of the new firm;

●

establish the challenges that firms face in learning from acquired operations.

Introduction
Cross-border mergers and acquisitions (M&As) are of particular concern to those interested
in IHRM. The process of merging two firms, whether they be from different countries or
not, raises a number of HR issues: the details of the merger and its likely implications for

employees must be communicated; management must decide on the extent to which they
will seek to integrate pay and benefit policies; and the employment consequences of the
restructuring that follows most mergers must be confronted (e.g. Teerikangas et al. 2014).
The way in which these issues are handled, and the quality of leadership in particular, are
important in shaping the fortunes of firms that have gone through international M&As
(Gill 2012). The impact of a merger or acquisition, particularly the nature of restructuring,
depends in large part on the rationale for it and the context in which it takes place. For
example, a merger based on adverse trading conditions, over-capacity and the desire to cut
costs is much more likely to lead to large-scale redundancies than one based on an expansion into new markets (Aguilera and Dencker 2004). The impact of cross-border M&As is
also likely to be strongly shaped by national effects. These national effects show up in two
ways; first, in terms of the orientation of the parent or larger firm in the merger, something
we have termed the ‘country-of-origin’ effect in earlier chapters; and, second, the way that
HR issues are handled differently at national level, or ‘host-country effects’. We consider
both aspects of these national effects in this chapter.

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The 1990s witnessed a boom in cross-border M&As, with their value increasing from $150
billion in 1990 to more than $1,000 billion in 2007. Rather than being a steady rise, the value
of cross-border M&As has been highly cyclical with sharp rises in the late 1990s of very nearly
50 per cent per annum, a subsequent fall in the first few years of the millennium, sharp rises
again between 2004 and 2007, before a subsequent fall in the years that followed to $348

billion in 2013 (United Nations 2015) (Figure 7.1). The peak prior to the financial crisis of
2008 was a period in which there were a string of very large deals, including the famous – or
notorious perhaps, given subsequent events – acquisition of ABN-AMRO by a consortium
led by the Royal Bank of Scotland (RBS). In the year 2007 alone, there were 96 cross-border
mergers which were valued at more than $3 billion. Thus cross-border M&As have been one
of the principal ways in which firms have reorganized themselves internationally.
Cross-border M&As can transform companies in terms of their scale, structure
and geographical orientation. A prime example is RBS, mentioned above, which acquired
either partial stakes in, or full ownership of, banks in a number of countries in the 10
years or so prior to the ‘credit crunch’ of 2007–8. The aggressive expansion, particularly
the purchases of companies near the peak of the stock market boom in 2007, was one
factor in the company’s huge debts, leading to the UK government taking a majority
stake to keep the company afloat. RBS is not an isolated case in terms of the problems
it encountered following overseas acquisitions. Many sources of evidence testify to the
poor financial performance that is experienced by firms that have engaged in a series of
cross-border M&As (Habelian et al. 2009). Moreover, a report by KPMG into cross-border
M&As in Europe found that the majority of deals had failed to improve financial performance. The report argued that ‘the process of entering into M&A transactions is often
less than perfect, with key elements left too late and post-completion integration tackled
haphazardly’ (KPMG 1999: 23). The greater likelihood of cultural differences between
parties to a cross-border merger when compared with domestic mergers may bring more
acute challenges that help explain this disappointing performance. However, differences

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Figure 7.1  The growth in cross-border mergers and acquisitions ($ billions)
Source: UN (2015) World Investment Report.

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Chapter 7 / Cross-border mergers and acquisitions

between the parties may also bring greater potential for learning. Stahl et al. (2004: 90–2)
argue that this may explain why, while cross-border M&As are associated with poor performance, they actually compare favourably with domestic M&As (see also Vaara et al. 2012).
The importance of cross-border M&As as drivers of corporate restructuring demands a
close inspection of the processes involved. Throughout we make use of our own empirical
research into cross-border M&As to illustrate the points (Rees and Edwards 2003; Edwards
et al. 2008; Edwards and Edwards 2015). This has taken the form of a series of case studies
looking at the handling of HR issues in the British arm of firms formed through a cross-border
merger. For reasons of confidentiality, the companies are often referred to with pseudonyms.

The national orientation of the parent in cross-border M&As
One of the key issues facing a firm that has been created through a cross-border merger is the
extent and process of integration between the two firms. One pressure to integrate comes
from the incentive to present a uniform face to global clients. In some service industries, such
as management consultancy, and in some manufacturing industries, such as automotive
components, firms are selling principally to other MNCs that are requesting a service or product which has few differences across countries. This necessitates the firm standardizing many
aspects of its own operations, including HR issues such as work organization, training and service delivery. In other cases, cross-border M&As are justified to shareholders on the basis that
they will allow significant cost-cutting to take place. This requires the merged firm to remove
duplicate functions and shed excess capacity, another force towards integration. A further
reason why merged firms will look to integrate their HR policies across borders is that it will
promote the mobility of staff across the company. Standard pay scales and benefits policies,
at least for managerial and professional workers, are one way of facilitating such mobility.
However, in earlier chapters we have noted a number of significant differences in the
framework of employment relations across countries. The distinctiveness of ‘national
business systems’ shows up in a number of respects. One aspect of this is in relation to
managerial backgrounds. In France and Germany, it is common for senior managers to

have technical backgrounds, whereas in Britain and the USA, finance and accounting
backgrounds dominate. This has implications for the sort of control mechanisms adopted
at firm level. Historically, many large French and German firms have favoured a ‘functional’ corporate structure in which senior managers are involved in a range of technical and operational matters in the various units. In contrast, most British and American
firms have strongly favoured a ‘multi-divisional’ structure in which the HQ merely exercises financial controls over divisions which operate with devolved responsibilities (Mayer
and Whittington 2002). A further difference between countries concerns the use by firms
of ‘internal labour markets’ in which recruitment is to junior positions with more senior
positions being largely filled from internal promotions: while this has been a common
practice in Japan, in other countries, such as the UK, there is much greater recourse to the
external labour market and, consequently, much greater inter-firm mobility of labour. The
laws and institutions that afford employees the right to be consulted about, and influence,
decisions which affect their job security, pay prospects and the nature of their day-to-day
work also differ markedly from country to country, with one contrast being between the

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highly regulated and codified system of employee representation in Germany and the more
deregulated American system. One illustration of how national differences are evident in a
firm formed through a cross-border merger is provided by Vaara et al. (2003) in their study
of the Scandinavian financial services group, Nordea. The authors cite the views of managers within the organization and show how ‘national stereotypes’ were constructed and
endured. While these did not represent an ‘absolute truth’ concerning how people behaved,
they did help those within the organization to make sense of why others behaved as they
did. Thus ‘according to these “strong” stereotypes, Swedes were frequently seen as consensus-driven, Finns as action-oriented, Danes as negotiating merchants and Norwegians as

people who go straight to the point in decision-making’ (2003: 62).
These national differences are central to understanding the competing pressures on firms
as they acquire or merge with those in other countries. The differences create pressure for
national ‘differentiation’ of HR policies, for a company’s approach to be responsive to the
peculiarities of national systems. This is developed in the next sub-section. National differences are also significant, however, for the way they shape the extent and nature of integration. As we saw in Chapters 4, 5 and 6, most international firms are embedded in their original
country in a range of ways: finance is raised and ownership is concentrated predominantly
at home; senior managerial positions are filled largely by nationals of the home country; the
government in the country of origin often has close ties with, and influence over, large MNCs;
and so on. This embeddedness gives rise to a ‘country-of-origin effect’ in the way they manage
their workforces. Thus, we might expect this effect to inform the way that the dominant firm
in a cross-border merger seeks to integrate its acquisition into the wider firm.
Indeed, the available evidence suggests that MNCs are significantly influenced by their
original nationality in this respect. One illustration is a study by Faulkner et al. (2002) which
examined acquisitions of British firms by foreign MNCs. Over the period from 1985 to 1994,
the researchers examined through a postal survey the nature of post-acquisition change in
201 cases, with the parent firms being American, Japanese, French and German. While they
found that there were some changes that appeared to occur whatever the nationality of the
parent firm – most firms had sought to establish a clear link between pay and performance, for
example – their findings also revealed significant differences by nationality in the handling of
HR issues in the post-acquisition period, particularly in relation to recruitment, development
and termination practice. One of the clearest findings was the preference among American
firms for formal and regular appraisals, with these being used to ensure good performance;
consistently sub-standard performance could easily lead to ‘separations’ under such systems.
More generally, American firms exhibited a centralized, forceful and hands-on approach
to integration, including an emphasis on trying to shape the culture of the acquired unit.
Japanese firms also exhibited some distinctive ways of integrating acquired firms: they were
less likely to rotate managers between different tasks; they favoured seniority as an important
criterion for promotion; and they took a slower, more considered approach to change
than the Americans. French acquirers also appeared to introduce some nationally specific
practices in the post-acquisition period, such as emphasizing formal qualifications as criteria

for promotion. The authors also argued that there was a ‘glass ceiling’ for promotion for
non-French managers. German acquirers tended to emphasize technical expertise in
recruiting, but generally they adopted a highly decentralized approach to decision-making
on HR issues and, relatedly, attached less emphasis on using HRM in an integrative way.

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Where the acquiring firm is clearly bigger than the acquired unit, this ‘country-of-origin effect’ seems to show through clearly. However, what happens where the two parties
to a merger are of a comparable size? In such cases, the orientation of the merged firm
is less clear-cut. This is a significant issue because in the last two decades a number of
cross-border mergers have involved broadly similar-sized firms, creating what has been
termed ‘bi-national’ firms. Bi-nationals are so called because the merger results in them having strong roots in two rather than one business system. This shows up in a number of ways.
In terms of the ownership of merged firms, the overwhelming focus on one financial system that is characteristic of most MNCs is strongly eroded. The roots that bi-national firms
have in two systems also show up in the cosmopolitan nature of the management board.
It is common for a board in a firm formed through an agreed merger to be comprised of
proportionate numbers of managers from each party to the merger. For example, with the
creation of Astra-Zeneca, the top four managerial positions were divided up between two
Britons and two Swedes. The international expansion of formerly state-owned companies
has reduced a further source of national influence from the parent, namely, that of the state.
France Telecom, for example, has undertaken a string of acquisitions overseas, funded by
raising finance on the financial markets in France and elsewhere, thereby reducing its ties
with the French state; in 2013, this led to a formal re-branding of the whole group with the

firm taking the name Orange, which was the name of the mobile operator it had acquired
in 2000 (Financial Times 2013). More generally, the wave of cross-border M&As in the late
1990s was one force towards the increased international spread of MNCs, something that
is picked up in the growth of the UN ‘Transnationality Index’ (see Chapter 4).
In the case of bi-nationals which are created through cross-border M&As, is it possible to
predict how the management of people will be handled? In particular, are there likely to be
discernible national effects? Three possibilities exist. First, two national management styles
may continue to be evident some time after the merger with full integration between the
two parties to the merger being weak. If quite different styles do exist, there may be tensions
between the two. Second, an integrated style may emerge following the merger which is a
hybrid of the two styles. Third, an integrated style may also emerge based on one of the styles
characteristic of one of the two firms. The case study of HealthCo in Box 7.1 shows how all
three of these possible scenarios can be evident in a bi-national firm.

Box 7.1

Case study: HealthCo
The pharmaceuticals and health-care sector witnessed a number of mergers in the late 1990s. One
of these brought together a British company with
one which was predominantly American, forming
a new group that has very strong bases in the UK
and in the USA, as well as a notable presence in a
number of others. The firm is officially registered
as a British company, but has a split stock market
listing in the UK and America, an HQ that is split across

the two countries, and has a mix of nationalities on
the company’s management board – Americans
and Britons comprise almost equal numbers, while
other nationalities are represented too. The firm is

therefore an excellent one in which to investigate
the way in which a company formed through a
cross-border merger has a detectable country of origin effect. Is it possible to detect particular national
influences over the management style of HealthCo

➨

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or is this a cosmopolitan, globally influenced firm?
If the former, does the British or American influence
show up more strongly?
The evidence from nearly 40 interviews in
HealthCo suggests that it has been strongly influenced by the American system, something that
shows up in a number of respects. First, the firm
has a number of global HR policies on issues such
as performance-related pay. The influence of the
centre was much more marked in the predominantly American party to the merger than in its
British counterpart, which was described as being
like an ‘absentee parent’ by a number of Americans.
A relatively centralized approach to decision-making
on HR issues is a characteristic feature of American

MNCs more generally (see Ferner et al. 2004).
Second, in the manufacturing side of the business,
all of the sites were required to introduce a process
known as ‘Lean Sigma’, which is a way of identifying
waste and potential economies in the organization
of production. An American firm of consultants led
the introduction of this. Third, since the merger,
the firm has introduced a new policy on the length
of time that ‘contingent’, or temporary, workers can
be employed continuously. Responding to a legal
ruling in America, the firm imposed an 18-month
maximum time limit on the use of such workers in
America and Britain, even though the law in the
United Kingfom is different. Fourth, in relation
to ‘diversity’, the American operations are clearly
perceived as being more advanced than those in

other countries and have served as the model on
which practices in other countries have been developed, such as ‘diverse marketing teams’.
In short, the merger has created a firm with no
clear-cut national ‘centre of gravity’, but one that is
shifting towards America. The interviews demonstrate that this shift appears to be partly explained
by the attractions of the United States to senior
managers, such as the widespread perception of it
as a fast-moving, dynamic system and one that is
‘more advanced’ in some areas such as diversity. One
manager summed up this influence: ‘All our competitors, or the majority of our competitors, are in the
States. So, you know, 70% of our competition is in the
United States, so role models of how people behave in
our industry almost seem very influenced by the US.’

However, the influence of the HQ, which we
have argued is distinctively American, is of course
mediated by the dominant features of the various
host country systems that the firm operates within.
For example, the pace at which restructuring has
taken place has been swifter with less consultation
in the United Kingdom than in Germany, partly
reflecting the legal requirements for negotiation
with employee representatives. The central influence was also constrained by country-level managers who were reluctant to give up their autonomy,
something that was particularly marked in countries with operations belonging to the British party
to the merger.
Source: Edwards et al. (2006).

Question: To what extent can the concept of ‘dominance’ effects help explain the direction the company took following the merger?
The case study of HealthCo has demonstrated not only the influence of the business systems of the main parties to a cross-border merger but also the influence of host country
systems in shaping the effects of a merger. It is to this that we now turn.

Restructuring at national level and the legacy of distinctive
national systems
The regulation of M&As has some common aspects across countries. This is particularly
so within the EU where there is a common legal framework setting out a minimum set of
employee rights during M&As. This framework stems from the EU Acquired Rights Directive

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(77/187/EEC), which was subsequently revised, concerning the safeguarding of employees’
rights in the event of a transfer of ownership of companies. In essence, the acquiring firm
must respect most of the obligations that the acquired firm had towards its employees. In
particular, the Directive states that:
●

terms and conditions existing in a collective agreement must be observed until such an
agreement expires or is replaced with a new one;

●

a transfer of ownership does not of itself constitute a justifiable reason for dismissals
(though that does not mean that none will occur – they can take place for ‘economic,
technical or organisational reasons’);

●

the status of employee representatives should be preserved following a merger or
acquisition;

●

these representatives are entitled to be consulted as to the likely or planned economic
and social implications of the transfer, with this consultation occurring ‘in good time’
before the transfer is carried out.

The Directive has been implemented into national law in all EU member states, with only

limited variation at national level, and is a requirement for new ‘accession’ countries. Thus,
where M&As bring together firms from different EU countries, there is to some extent a
common legal framework governing the process.
Despite this EU-wide framework, there are marked differences in the extent of regulation
across EU countries since some have additional provisions concerning employee participation in M&As (see EIRO 2001). In the Netherlands, for example, there are a number of
institutional means through which employees’ rights are protected, notably through the
‘Merger Code’ and the Works Council legislation. These require that management in the
companies involved in a merger inform both sets of works council representatives and also
inform union representatives. Management must provide the works council with information concerning the likely impact of the merger, provide a justification of its decision, and
show that it has taken account of workers’ interests. Crucially, works councils have the right
to seek external expert assistance and can challenge management’s proposals; if they do so,
then the proposals must be postponed for a month, during which time the works council
can go to a Labour Court to challenge the decision. If this court feels that management have
not done enough to safeguard employees’ interests, it can prevent management’s plans
being implemented. In addition, a merged firm wishing to make redundancies must get the
approval of a ‘District Employment Services Authority’, and the firm’s Supervisory Board
must approve any major changes involved in post-merger restructuring. Even after the recent
revisions to the ‘Merger Code’, which have marginally weakened the position of unions and
works councils in the target company and made hostile takeovers slightly easier, it is clear that
Dutch workers enjoy significant legal and institutional protection during M&As.
In Spain, there are also national-level provisions safeguarding employees’ rights, though
these are not as strong as those in the Netherlands. Spanish firms are obliged to consult with
both works councils and trade unionists. In particular, the ‘Workers’ Statute’ gives employee
representatives the right to be consulted on the same basis as shareholders; since shareholders
must be informed in writing at least one month before a general shareholders meeting at
which the merger proposals are to be discussed, so workers must be informed at the same time.

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Moreover, where a merger or acquisition involves ‘any incidence that affects the volume of
employment’, worker representatives must be given at least 15 days to issue a report containing their views, and this must be received and considered by management before a merger
is consummated, though they are not obliged to implement its proposals. However, while
worker representatives do not have the power to block or even delay job losses involved in a
merger, where collective redundancies of roughly 10 per cent of the workforce are not agreed
by worker representatives and management, the plans must go for approval to a ‘labour
authority’ at either local, regional or national level, whichever is most appropriate.
In the United Kingdom, by contrast, the ability of employees to influence the merger
process is weaker and the framework protecting employees’ rights is more minimalist. The
European Directives were transposed into UK law through the Transfer of Undertakings
(Protection of Employment) Regulations (1981), known as TUPE. This Act, which has been
subsequently amended to comply with the new European Directive, gives employees the
basic rights of consultation that exist across the EU. In addition, legislation on collective
redundancies also gives employees the right to be consulted 90 days before any such redundancies are made. However, beyond these provisions, any influence that employees possess
stems from their bargaining power in relation to their employer, either in an organized way
through the influence of unions or through their possession of skills which mean they are
of value to their employer. In essence, therefore, managers have a freer hand in the United
Kingdom to make changes following a merger than they do in most European countries.
Differences in the regulation of M&As within the EU are even greater when compared
with other countries, such as those in North America and Asia. Variations in legal frameworks are only one element, of course, of wider differences in systems of employment
relations. These differences encourage the decentralization of decision-making on HR
issues in firms formed through a cross-border merger. In other words, ‘host-country effects’
significantly shape the handling of HR issues.

The importance of these national-level institutions and regulations shows up in a recent
study of Franco-German mergers. Corteel and Le Blanc (2001) argued that ‘social issues’ –
by which they mean pay, working time, holidays, pensions and so on – are governed by a
national logic, and that these are ‘lastingly rooted at national level’. Thus, in the companies
they examined, the differences between the French and German operations in terms of
pay, benefits and working time arrangements that existed prior to the merger continued
to exist following the merger. Managers had not sought to integrate practices in this area,
principally because they recognized the importance of national-level regulations and the
strength of the ‘social partners’ in the two countries.
Our own research confirms this picture (Rees and Edwards 2003). Interviews with HR
managers in the British arm of 12 firms which were involved in a cross-border merger or
acquisition (of which HealthCo was one) highlighted how remuneration was strongly conditioned by national-level factors. Pay and benefits were clearly one of the areas where
differences in practices become immediately apparent following a merger. The MNCs had
a strong incentive to integrate these policies, particularly where they wanted employees
to be geographically mobile. However, a key constraint on managers was that integration
would only be readily accepted by employees if it took the form of ‘upward harmonization’.
Thus, host-country effects led to the creation of a ‘patchwork quilt’ of various sets of pay
and conditions across borders (ibid.).

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The difficulties in integrating remuneration policies across sites in different countries also

exist, albeit to a lesser degree, between sites within countries. The TUPE regulations in the UK,
and the role of unions in securing collective agreements in many organizations, mean that
levels of pay and benefits continue to differ across sites that formerly belonged to different
firms. An IT services company in our research, which had taken on groups of workers gradually from a range of other firms through the subcontracting of their IT functions, had 27
sets of terms and conditions in its British operations at the time of our research. In a French
industrial firm, managers were quite clear that, while they would like pay levels to be similar
across their operations in France, there was little prospect of employee representatives agreeing to this. Thus, the ‘patchwork quilt’ existed within as well as between countries.
The way in which cost savings are made is also something which is strongly shaped by
host-country effects. As we indicated above, many cross-border mergers are motivated by a desire
to reduce costs through removing duplicate functions and concentrating activities in particular
locations. However, the ease with which plants can be closed and employees made redundant
differs across countries. Corteel and Le Blanc (2001) present a fascinating case which demonstrates this, namely the merger between the German-owned Quante and the French firm Pouyet.
Following this merger, the IG Metall union in Germany and the unions in France were successful
in preventing any cutbacks leading to compulsory lay-offs in France or Germany. However,
the firm did close a plant in the UK, where workers did not have the same legal protection. For
Corteel and Le Blanc, ‘It is reasonable to argue that . . . a logic aiming at preserving national
employment levels to the detriment of employees located on other territories prevailed.’
National logics not only constrain how management carry out restructuring following
international M&As; they also shape the way that employees perceive this restructuring.
This was the focus of Edwards and Edwards’ (2015) study of two US MNCs merging with
one another in which employees in Sweden, the Netherlands and the United Kingdom
were surveyed. The focus of the analysis was on employee perceptions of voice and representation, for which there are marked institutional differences across the countries, as we
have seen. Employees in Sweden perceived voice and representation to be weaker and less
effective than did their counterparts in the Netherlands and the UK, a finding which held
across time. Interestingly, therefore, the country with the strongest traditions concerning
employee voice and representation was the one with the most negative employee perceptions. This apparent paradox was explained as a result of the norms concerning employee
influence differing across the three countries and the practice of a centralized US MNC not
allowing very much employee influence over the key elements of restructuring; in other
words, it was the result of the greater gap in Sweden compared with the other two countries
between the institutionally conditioned expectations on these issues and the reality.

The implication of this body of work concerning the restructuring across national distinct systems is that groups of employees will perceive things differently and that a variety
of actors are able to shape the restructuring process which follows a cross-border merger. It
is not simply the product of systematic planning by senior management, nor is restructuring simply the result of a rational trade-off between the advantages of integrating policies
across borders, on the one hand, versus differentiating policies to national level, on the
other. Rather, it is a highly political process in which a variety of groups look to defend or
advance their own interests and use whatever sources of power they control to do so. We
now consider this political dimension in more detail.

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The political dimension to cross-border M&As
Much of the writing on M&As, in general, and cross-border M&As, in particular, stresses
the importance of managers following plans, guidelines and checklists if they are to make
a merger a success. For instance, Schuler et al. (2003) provide a series of guidelines for HR
practitioners to follow, such as ‘state-of-the-art HR policies and practices should be used’
(2003: 70). Similarly, Stahl et al. (2004) identify a number of HR issues that have to be confronted in a cross-border merger, such as assessing culture in the due diligence phase’ and
‘undertaking a human capital audit’. While such guidelines may to some extent be useful to
practitioners, we feel that it is crucial that the potential for conflict is more fully recognized
than is often the case. In this section we emphasize the internal disputes that arise within
MNCs concerning the nature of integration and restructuring in the post-merger period.
Mergers and acquisitions, whether domestic or cross-border, are a time when organizational structures and styles are ‘unfrozen’ and new ones are created. As Meyer and LiebDoczy (2003: 479) put it, ‘managers ought to be aware of the evolutionary processes within
the firm’ following a cross-border M&A. During this process, there are many individuals

and groups within the organizations concerned, who will look to defend or advance their
own interests. A merger is a time when a lot is ‘up for grabs’: the structure of the merged
firm must be determined; key positions need to be filled; the units that are to close or suffer
the deepest cuts have to be identified; and so on. While the forces of competition and the
demands of the financial markets mean that there are external demands that pressurize
companies into prioritizing certain outcomes, the process of reaching the eventual course
of action is a highly political one. There is a range of organizational actors who possess some
scope to influence the overall direction of the firm and, hence, this direction is not solely
the product of a rational process of planning by senior managers responding to external
pressures; it is also the product of a series of internal negotiations and compromises.
This perspective on organizations generally is well developed in the academic literature on strategy-making and organizational change. What is sometimes referred to as the
Processual approach to strategy (Whittington 2001) emphasizes the range of sources of
power within organizations that exist, with these not solely residing with those actors at
high points in the formal hierarchy. Thus, writers such as Mintzberg are sceptical about
the mainstream view that strategy-making is a rational and objective process. Instead, they
see strategies as emerging from a series of negotiations, compromises and ‘bodges’. As a
consequence, the outcomes of strategy can include goals other than just the maximization
of profits for the organization as a whole and can reflect such considerations as the desire
of a powerful group to safeguard the future of the unit in which they work. This political
perspective helps us understand organizations of any sort, but seems essential to incorporate into an analysis of cross-border M&As. This is partly because mergers are times when
a range of issues will need to be resolved, as argued above, but also because cross-border
M&As involve new operations in different business systems and the divergence of interests
within such operations is likely to create fertile ground for political activity.
This perspective is also evident in the literature on MNCs, which are seen by some
as ‘loosely coupled political systems’ (Forsgren 1990). The detailed case study work of
Belanger et al. (1999) into ABB is testament to the resources controlled by those in operating units of a large multinational. On occasions, these resources can be used to obstruct

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policies issued by the corporate centre. These political processes should be seen as central
to the way that the firms as a whole react to developments and challenges from the context
in which they operate. As Edwards et al. (1993: 3) put it: ‘Political processes are not separate
from structural forces, but represent the working out of responses to them.’
Our own case study work highlights a number of ways in which the process of merging firms across borders is highly political. Where international mergers bring together
firms of roughly equal sizes, perhaps the most obvious example is the composition of the
senior managerial positions. If a merger is billed as a ‘merger of equals’, it is important
symbolically for the top management team to be comprised of equal numbers from both
firms. For example, in the UK arm of the large French industrial firm referred to above,
the issue of proportionate ‘balance’ in choosing people for senior positions was seen as
crucial. This was influenced by the French parent company, where balance between the
three companies that had merged was highlighted explicitly by the CEO as central to its
success. In a different company, one manager argued that this process of dividing up the
positions according to the proportionate size of the companies could mean that the most
able and best qualified people were not always selected – or as he put it, ‘You can end up
with a complete dingbat in a senior position.’ Despite this, even this manager saw achieving
balance as necessary for the merger process to be seen as fair by employees of both ‘legacy’
companies. In other words, achieving balance may mean that the firm does not appoint
the best person for the job, but this is often deemed a price worth paying in order to create
an impression of fairness.
The way in which senior managerial posts are distributed was identified by Vaara and
Tienari (2003) in their discussion of the creation of Nordea. Because of the sensitivity of the
mergers being seen as one party being dominant, both to those in the organizations and

to those outside, particularly the national governments, it was seen as essential that they
were portrayed as ‘mergers of equals’. For this impression to be created, it was agreed that
there should be ‘an even distribution of positions in board and executive management’
(ibid.: 95). While this was largely seen as legitimate in the immediate post-merger period,
it soon became evident that maintaining this balance was creating tensions with other
priorities that the firm had developed, such as stressing the importance of competencies
in selecting managers for key positions and increasing the proportion of women in senior
levels of management.
The political dimension to cross-border mergers also shows up in the struggle for influence by organizational actors from different functions. Of great relevance here is the role of
those in the HR function; a perennial concern for HR practitioners in the United Kingdom
and in many other countries is their relatively low status within organizations, leading
to the danger from their perspective of being marginalized during major organizational
changes such as international M&As. In one of the IT companies in our study, the HR Director indicated that the function had not been involved in key strategic decisions during
an acquisition, such as the choice of partner and the speed with which it would be integrated, nor had they even had much influence over many of the HR issues thrown up by the
acquisition, such as the consultation process and recruitment to key positions within the
acquired unit. However, in other cases, it was evident that HR practitioners have used the
merger or acquisition as an opportunity to raise the profile of HR within the organization.
One example was the persistent efforts by an ‘HR Partner’ at an American financial services

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group to convince other managers, particularly those with an accountancy background, of

the benefits of involving her in the setting up of joint ventures in various European countries. These efforts took the form of stressing the impact on the bottom-line of mishandling
HR issues, such as the legal penalties of contravening the Acquired Rights Directive and
supplementary national regulations.
A further question that is an aspect of many cross-border M&As, and is highly political,
is that of where the main brunt of cost cutting is to be felt. Based on their study of Franco-German mergers, Corteel and Le Blanc (2001) argue that a company’s overall work load
is governed by a ‘national fair balance rule’. This rule means that orders from customers
are distributed among the firm’s sites not only according to the costs and performance of
these sites, but also according to what is seen as just. In other words, these decisions are
governed partly by ‘rationality’, but also by ‘fairness’. The impetus for this often stemmed
from informal deals that were struck during the merger negotiations; these were not binding following the merger, but breaching them would risk creating serious grievances in the
units which came off worse. As one of their respondents put it: ‘If we were willing to work,
politically, we had to distribute the load in a fair way.’ However, their data also point to the
limits of the ‘national fair balance rule’, particularly the way it is limited to certain territories. As discussed in the previous sub-section, the British plant of the firm formed through
the merger of Quante and Pouyet was closed, partly in order to preserve employment levels
at the French and German operations. Moreover, the authors also stress that the rule can
become strained over time, leading to its renegotiation.
Overall, this line of analysis indicates that it is the diffusion of control of resources
across a range of groups within a merged organization that results in the process being
so highly political. One of the resources that is controlled by staff at unit level within
MNCs is knowledge of, and expertise in, local institutions and regulations. This knowledge and expertise can be used to advance or protect their own interests. The Corus case
study considered in Box 7.2 illustrates the interdependence between local institutions
and regulations, on the one hand, and the influence of different groups within merged
firms, on the other.

Box 7.2

Case study: Corus
The merger of British Steel with Hoogovens in June
1999, forming the Anglo-Dutch group known as
Corus, provides an interesting example of what

can happen when firms from two quite different
business systems join together. One key difference
between the two countries concerns the nature of
employee relations; as we have seen, the Dutch system affords employees more scope than their British
counterparts to influence the restructuring that follows a merger. This has had significant implications

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for relations between different units of the firm in
general, and for the form that cost cutting has taken
in particular.
The merger took place in the context of over-capacity in the sector. Other mergers between steel
firms have occurred, notably that between Usinor
of France, Arbed of Luxembourg and Aceralia of
Spain, with the prime motive being the opportunity to realize cost savings through removing
duplicate functions. At the time of the Corus

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merger, managers promised shareholders that
savings of £194 million a year would result. It
was evident that this would mean large-scale
redundancies.
By early 2001, with the market for steel turning
markedly down, it was apparent that Corus would
be suffering very large financial losses. In February

of that year, management announced that 6,000
employees in the British operations would be losing their jobs. The union representing most of the
British workforce, the Iron and Steel Trade Confederation (ISTC), pressurized the company to amend
its plans, advancing counter-proposals which
included buying a plant from the company and
short-time working to tide the company over until
the market picked up. However, the legal framework in the UK meant that these proposals would
have to find support from managers if they were
to have any impact, and the company was adamant that they should press on with their original
plans. Meanwhile, in the Netherlands, redundancies were also taking place. Only six months after
the merger, there had been a ‘wildcat’ (unofficial)
strike at the huge and profitable Ijmuden plant
following the announcement that the steel manufacturing department would be shut with the loss
of 590 jobs. In 2001, it was announced that 1,100
further jobs would be cut as the company’s losses
became apparent.
During the first two years or so of the post-merger
period it appeared that employee representatives
were liasing more closely across the two countries.
When the axe fell on 6,000 British workers in early
2001, the Dutch Trade Union Federation (Federatie
Nederlandse Vakbeweging, FNV) wrote to the ISTC,
pledging support for their campaign of opposition
to the cuts. Moreover, the Dutch union hinted that
it might support a boycott at the Ijmuden plant of
any work that was to be transferred from the UK to
the Netherlands.
Even after the large-scale cuts of 2001, the
company’s troubles continued. The share price
at the end of 2002 stood at less than half of its

value at the time of the merger. This added to the
pressure on senior managers, and in response the
company signalled a move away from its ‘multimetal’ strategy by proposing to sell its aluminium
business to Pechiney of France. This met strong
resistance from employee representatives, and
also revealed tensions between the different parts

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157

of the business across the two countries. According to press reports, many in the Dutch part of
the firm had come to resent the merger, seeing it
as a take-over of a profitable Dutch business by
an ailing British one. In late 2002, it became evident that the Dutch supervisory board, which is
made up of a mixture of managers and employee
representatives, was threatening to use its power
to veto the proposed sale of the aluminium business. Members of the board were concerned
that the proceeds from the sale of this part of
the business, which stemmed mainly from Hoogovens, were to be used to pay off group debt
rather than re-invested in the Dutch part of the
business. The implication was that further cuts
would have to occur in the UK if the supervisory
board was to approve the sale. Indeed, the chair
of the board, Leo Berndsen, is reported to have
said that if senior managers ‘don’t tackle structurally the problems in the UK, Hoogovens will
become Corus’s cash cow’. The supervisory board
did indeed use its power to block the sale, throwing the company’s future into doubt for a while.
Management’s response was to seek further rationalizations in the British part of the business,
involving yet more redundancies. Between 2004

and 2007 the company’s fortunes turned upwards,
mainly off the back of steep rises in the steel price,
and its share price rose steeply. The booming steel
sector more generally led to fresh merger interest and in 2007 the company was taken over by
Tata, an Indian conglomerate. This acquisition
was quickly followed by the recession of 2008
onwards, leading to fresh bouts of cost cutting.
The case of Corus, in general, and the dispute
over the sale of the aluminium business, in particular, demonstrate the way in which actors at local
level within MNCs can draw on their embeddedness
in the local institutional framework and use it as a
source of power within the company. As we have
already seen in this chapter, the ability of British
workers to shape management’s plans during and
after a merger is much more limited than that of
their Dutch counterparts. The significance of the
role of the Dutch supervisory board in particular,
and the institutions and regulations in the Netherlands more generally, is evident not only in the
way that they have limited the restructuring in the
Netherlands itself, but also in the knock-on effects
on restructuring in other countries.

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Question: Why will the concerns of employee representatives be different in other types
of cross-border mergers?

Cross-border M&As and organizational learning
This section addresses a key question about cross-border M&As, namely, to what extent
do organizations engaged in international M&As learn from their experiences? In particular, it investigates the extent to which expertise and practices in the operations that
are acquired are transferred to the parent company. Growing by acquisition automatically increases the diversity of expertise and practice in the wider firm; no two firms will
have identical practices, nor will the body of expertise be the same. Thus, in contrast to
firms that do not grow at all, firms growing through M&As receive fresh input in terms
of technologies and practices. Moreover, in comparison with firms that grow through
‘greenfield’ investments, there is also more of an external input into companies growing
through M&As as they inherit a set of pre-established practices and a body of expertise,
giving them great potential to engage in knowledge transfer from their acquired operations (Vaara et al. 2012). This is especially so for international M&As and making use
of this diversity is a key aspect of the integration process (Bjorkman et al. 2007; Stahl
and Voigt 2008). Schuler et al. (2003: 114) argued that ‘capturing and consolidating
the learning and knowledge that has been generated throughout the IM&A process is
perhaps the most important activity’ during the full integration stage. Despite this,
there is rather little empirical evidence on this phenomenon in practice (Habelian
et al. 2009). Some studies look at how international acquisitions provide firms with
the knowledge to operate in the market in which they have made the acquisition
(e.g. Zou and Ghauri 2008), but there are few that look at ways in which knowledge and
expertise are spread to the rest of the firm. In one study, Bresman concluded that while
‘the immediate post-acquisition period is characterised by imposed one-way transfers of
knowledge from the acquirer to the acquired, . . . over time this gives way to high quality
reciprocal knowledge transfer’. However, they were not writing about HR specifically
and we need to know more about the extent and nature of transfer from the acquired
operations back into the rest of the multinational. In doing so, we draw on a recent study
of this issue (Edwards et al. 2008).
Edwards et al.’s (2008) survey analysis showed that while some firms do indeed absorb
new knowledge and practices from acquired units, on average, firms growing through

international M&As are no more likely to learn from their foreign units than those that
have not grown in this way. They then used the case studies to explore this issue further,
with variation evident in the extent to which the transfer of knowledge was a key aim
of management in the post-merger period. In three of the firms, there was no evidence
that the acquired units had instigated a process of corporate-wide learning. This was the
case in AmeriBank, US Industrial and New Finance. In one of the others, Euro Cure, the
acquisition was motivated by ‘an acquisition of knowledge . . . an acquisition of their
potential and their future’ but this had not been completely successful. At the time of
their research, however, this had not fed through into concrete instances of transfer from
the acquired operations.

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159

In two of the other case studies it was possible to identify practices and expertise that
had been absorbed into the parent company. One of these was InterServ, which was bought
partly for its management style. According to the respondents in the acquired company,
the acquiring firm was deliberately purchasing another whose ethos and approach differed
markedly from its own yet which it very much admired, describing the acquired firm as ‘fast
moving’ and ‘vibrant’. This had opened the door for those in the UK operations that had
been acquired to push a number of their ideas and practices onto the parent firm, enabling
them to raise their own profile within the much larger company of which they had become
a part. There were three examples of new company-wide initiatives that had been developed by those in the UK, including a share plan, an employee survey and a new talent

management system. The other case study firm in which the acquired units had exerted
influence on the rest of the firm was Global Drug. Acquisitions in this sector in recent years
have been characterized by big pharmaceuticals firms purchasing much smaller bio-techs,
which often lack the financial backing and expertise necessary for long-term success. Since
most bio-techs do not have the resources or experience to take a drug beyond research and
development, through several phases of clinical trials and on to end-stage marketing and
sales, they are an attractive source of knowledge to large pharmaceuticals firms looking
to enhance their pipeline or to fill a gap in a particular drug category. The acquisition in
question in Global Drug was of a very small bio-technology company in the United States
that had very particular expertise in a specific technology that was of great interest to the
acquiring firm. Clearly, what were being absorbed in this case were not innovative HR
practices, but the absorption of the technical expertise had clear HR consequences. As one
manager put it, ‘We did appreciate that it would take time to get to the point of saying we
have acquired the technology transfer.’
How should the patterns in the data be viewed? Clearly, expertise is absorbed into the
wider firms in some cases, but this is clearly far from a straightforward process. Edwards
et al.’s (2008) research highlighted six factors that lead some acquiring firms to engage in
transfer across the firm while others did not.

◗ The motivations for the acquisition and the assumptions held
about the nature of the acquired units
One factor that shapes the extent to which acquiring firms learn from acquisitions is the
assumptions that they have about the quality of the companies that they buy. In some cases
the senior managers driving the acquisition may be motivated by a desire to tap into expertise
in the company that they are purchasing but in other cases the acquired firm is perceived in
a less positive light, particularly when the national system in which it is located is viewed
negatively. Thus, the acquiring firm is unlikely to learn from its new operations, an example
of which was AmeriBank’s acquisition of a Polish bank. This acquisition was motivated by
a desire to establish a significant presence in a new market but it was clear that they were
not expecting to be able to learn from the firm that they acquired. As one respondent put

it, ‘what they had didn’t really matter that much’. The acquired firm was viewed by the parent as having some ‘irrelevant’ processes, such as the manual counting of money, and some
‘outdated’ benefits, such as meal tickets and holiday homes. More generally, HR was seen as
a low-status function that needed to be ‘professionalized’. This approach to acquisitions in

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which the acquired firm is seen as having little to offer is likely to be common in those cases
where a well-established company from a developed economy is acquiring a much smaller
firm in a transition economy. Thus AmeriBank’s approach was certainly not illogical; those in
the Polish bank had local market knowledge and contacts with key intermediaries, but were
unlikely to be able to teach the parent much about how to manage its international operations. This approach of assuming that the acquired firm may have little to offer is also likely
to be found in cases where a failing company is acquired; in a scenario where the parent has
rescued a firm on the brink of collapse, it is unlikely to then search for distinctive practices
or expertise in the acquired operations. In other contexts, however, the assumption that the
parent firm has little to learn may be less justified and may represent a missed opportunity to
learn. As we will see, this was evident in some of the other case study companies.

◗ A centralized model in the acquiring firm
A second factor, and one which is related to the first, is the extent to which the parent firm
has a centralized approach to managing its international workforce. An example of this is
US Industrial and its acquisition of a much smaller British firm, a move that was part of the
parent firm’s emphasis on growth into new business areas. However, despite this being the

motivation for the acquisition, US Industrial largely imposed its structure and culture on the
organization it acquired. With an ethnocentric mindset, the firm’s HR policy and practice
emanated from Head Office with strategic decisions being made centrally. A part of this
approach was to make cost savings through rationalizing the acquired units and installing
‘change leaders’ from US Industrial. There were signs that the ethnocentric perspective in US
Industrial had led to the firms not appreciating other ways of doing things and, therefore,
losing opportunities to learn from their new subsidiary. A joke in the organization concerning its approach to acquisitions was that the company’s actual name stood for a phrase
equivalent to ‘You Must Comply’, representing the heavy-handed approach to managing
post-merger integration. Overall, then, while centralization can deliver many benefits to
the organization, such as global consistency on a business model that may have worked
well in the home country, the case indicated that where the predominant model in an
acquiring firm is centralization, such an approach can lead to a blinkered perspective which
in turn can impede learning from the new organization.

◗ The lack of a strategic approach to acquisitions
A third factor, and one that is also related to the issue of how effectively an acquirer is
able to see the diversity of practice and expertise that it has bought, concerns the extent
to which it adopts a deliberate strategy of integrating any such practice or expertise. In
some of the firms, as we have seen, the acquisitions were motivated by a desire to take
advantage of what the acquired operations possessed with a view to using this in other
parts of the firm. However, in one of the other companies, New Finance, there was no such
strategic approach. This company had expanded quickly through a range of acquisitions
paid for largely in shares, the value of which had risen sharply as the stock market at that
time looked very favourably on firms that used the Internet as the main vehicle for accessing customers. It acquired financial service providers in a number of countries with the

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inflated valuation of the parent company meaning that it was possible for senior managers
to buy up companies without having to build a convincing case to analysts concerning the
scope for rationalizations. In describing its approach to acquisitions outside the USA, one
respondent indicated that the company ‘took almost a shotgun type approach, no real
clue of what they were doing’. Thus, New Finance lacked a coherent plan to its growth that
meant it never achieved the equilibrium needed to put in place the mechanisms to enable
learning. With so many acquisitions in a short space of time, it was unable to stop and
reflect on the potential learning opportunities in its latest purchase because it was already
in the process of the next one. Thus, once in possession of the new entity, there were no
plans in place to learn from acquired operations. This case study illustrates a key challenge
to be overcome if international acquisitions are to result in learning, namely, the need for a
deliberate approach to learning involving the establishment and maintenance of channels
through which knowledge can be transferred.

◗ Central resistance to the acquired units taking the lead in policy
development
A fourth factor concerns the openness to learning from acquired units on the part of those at
the centre of the company. In the case of InterServ, the message of valuing the British firm’s
dynamism and innovative approach was not matched by the attitudes of many in the HR
function at the firm’s HQ. The respondents in the UK described the parent firm as having
an ‘old fashioned HR team’ that relied on a rather ‘bureaucratic’ approach and which had
not ‘even been involved in the acquisition’. This apparently had caused some resentment,
particularly when the senior corporate management at the HQ were heaping praise on the
approach of the acquired firm. This had led to some heated exchanges involving an HR
person at the HQ saying to a British counterpart, ‘If you are so good, why weren’t you the

acquirer?’ Those in the central HR function were seen as keen on a form of integration that
involved their pre-existing model being the basis for how the company should operate. As
one respondent put it, ‘What they would dearly like to do from a management perspective is
for us to adopt their approach lock, stock and barrel.’ In this context, the UK operations leading on some new policy developments had caused some tensions within the HQ, with the HR
Director apparently being irritated that senior managers were looking outside the country of
origin in allocating the role of leading new initiatives. Accordingly, there was an acceptance
on the part of those in the British operations that to be effective in transferring expertise they
had to tread carefully, not going in ‘with all guns blazing’. Thus, if the organization is to use
the expertise and practices of its acquired units, then there must be a commitment from those
at the centre of the company to welcoming input from these operations and sensitivity on the
part of those in the acquired firm concerning how their messages will be received.

◗ The ‘situated’ nature of some knowledge and expertise
A further challenge to be faced in using knowledge and practices across business units in
firms that have grown through acquisition is that some of this will have been developed
in a distinctive context and might not easily be transferred to a different setting. This is
particularly likely to be the case in international M&As due to the cultural and institutional

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differences across borders. The situated nature of expertise shows through strongly in the
case of Euro Cure. The deal in question was motivated by ‘an acquisition of knowledge . . . an

acquisition in their potential and their future’. Yet, to a high degree the knowledge was
‘situated’ in that it could not easily be transferred across locations. A crucial factor in this
respect was that researchers with particular expertise could not easily move to a different branch of research: ‘When you get into the deep science, people can’t move from one
field to a completely different scientific arm.’ Thus, the firm understood that there were
some synergies between the two firms that could be realized but there was little attempt
to embark on a challenging process of ‘taking two entities and blending them into one’.
The HR implications of this were that the acquiring firm adopted a largely decentralized
approach to managing its acquired operations. As one put it, ‘We are saying to them just
keep doing what you were doing.’ This limits the opportunities for ‘cross-fertilization’ in
areas that are common to both, such as the support functions, as where the remits of the
two entities are so different and there exists little overlap, this limits the scope for knowledge to be transferred across the merged organization.

◗ Adopting an incremental approach to accessing expertise in
acquired units
The case of Euro Cure also illustrated a further challenge in learning from international
acquisitions. In considering the firm’s approach to post-acquisition integration, it was
acknowledged that there was a danger in accessing the knowledge and expertise of the
acquired unit in an over-zealous manner, resulting in missing the opportunity altogether
and rendering the acquisition futile. As one respondent put it, ‘Our CEO said what is not
going to happen is that everybody has jumped on this new toy, ripped it apart and we
have gone and bust the damn thing.’ This tension can be overcome to some extent, which
shows through very clearly in the case of Global Drug. This company had been through a
number of acquisitions and had a clear plan for how they would fit into the company’s
structure, in which HR seemed to be very well placed to influence the approach to acquisitions, including who was acquired. As we saw above, the key challenge in the acquisition
of the small bio-tech company in the USA was to absorb the expertise they had in such a
way that was sensitive to how the parent company would be perceived. In this case, it was
evident that the technology being acquired was completely different to the technology that
they had been using previously and to some degree this in itself was a barrier to learning.
It was described as ‘not going there and adding a few pieces to your existing knowledge,
it is going back to the beginning and learning a different way of doing the same job’. The

technology was seen as ‘taking some learning’ and to try and gradually absorb it, the parent
company sent small ‘scouting parties’ which were characterized as ‘Trojan horses’. This had
to be handled delicately as senior HR people were anxious to avoid a perception forming in
the acquired unit that the new parent was acting in a heavy-handed way in stripping away
the acquired firm’s distinctive capabilities. In order to reassure the acquired employees
of this, certain exceptions to corporate policies were permitted, some of which, such as
the free cafeteria that had taken on iconic status, were symbolic of a continuing degree of
independence. This was described as ‘making sure that they felt that the micro climate of
their culture . . . would be retained’ and by giving assurances such as ‘we are acquiring you

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but we are not absorbing you’. Thus, the specificity of the knowledge and the way it has
been situated in a particular and distinctive company presented a challenge to the acquiring company. The respondents argued that with such specialist knowledge it was hard to
know when the transfer was complete and the desired knowledge had been acquired: ‘We
did appreciate that it would take time to get to the point of saying we have now acquired
the technology transfer. There is no document that will assure that. It is a state of mind.’
Thus, where gathering knowledge or expertise is central to the purpose of the acquisition
or merger, an incremental approach to extracting this from the acquired unit is important.

Conclusion
The material in this chapter has both theoretical and practical implications. Theoretically, we have argued that the extent and form of integration between firms engaged

in a cross-border merger will be shaped by the national business system of the dominant firm, but will also be constrained by the peculiar features of the various national
systems in which the merged firm operates. We have also argued, however, that the
integration process, and the restructuring and learning that are key parts of this integration in most mergers, are also highly political. In particular, we have attempted to
show that the structural aspects of national systems, on the one hand, and the political
processes within merged organizations, on the other, are inter-dependent. As we hope is
now clear from this and earlier chapters, this approach is not only relevant to the issue
of cross-border M&As, but is also integral to the way we understand the operation of
multinationals more generally.
In practical terms, the preceding analysis of cross-border M&As has far-reaching implications. One of the central findings in much research on international mergers, as we have seen,
has been their high failure rate. The severe problems at RBS and Corus are examples of the
problems experienced by firms that have engaged in a string of acquisitions. In light of the
above material concerning both the quite different regulatory contexts in which mergers and
acquisitions take place across countries, and the highly politicized nature of the post-merger
period, it is perhaps not surprising that such problems and difficulties are so widespread. An
appreciation of the nature of these likely challenges on the part of both ‘deal-makers’, and
those such as HR practitioners who are involved in the subsequent integration, is essential if
cross-border mergers are to achieve the aims of those who initiate them.

Review questions
1Why are cross-border mergers and acquisitions more complex than domestic ones?
2In what ways do national effects condition the post-merger restructuring process?
3In what ways is the process of restructuring ‘political’?
4What are the key obstacles to be overcome if a firm wants to learn from an acquisition it makes in another country?
5If you were asked to highlight the key issues to an HR manager who is about undertake her first cross-border merger, what would you tell her?

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Part 2 / MNCs and International HRM

Further reading
1 Rees, C. and Edwards, T. (2003) The HR Implications of International Mergers and Acquisitions, CIPD
Research Report, London: CIPD, and Edwards, T., Budjanovcanin, A. and Woollard, S. (2008) International M&As: How Can HR Play a Strategic Role? CIPD Research Report, London: CIPD.
These two reports summarize two research projects carried out for the Chartered Institute of Personnel and Development in the UK, providing details on a series of case studies of a variety of mergers,
acquisitions and joint ventures.
2 Edwards, T. and Edwards, M. R. (2015) ‘Perceptions of employee voice and representation in the
post-acquisition period: comparative and longitudinal evidence from an international acquisition’,
Human Relations, 68(1), 131–156.
This article reports the findings of a longitudinal and comparative study of the experience of
employees in both parties to an international merger, focusing on their perceptions of voice and
representation.
3Stahl, G., Pucik, V., Evans, P. and Medenhall, M. (2004) ‘Human resource management in
cross-border mergers and acquisitions’, in Harzing, A. and Van Ruysseveldt, J. (eds) International
Human Resource Management, London: Sage.
The chapter provides an interesting discussion of how cross-border M&As present opportunities for
firms to learn from the diversity of their operations and then provides some details on the key HR
issues that firms encounter in the post-merger period.
4 Vaara, E. and Tienari, J. (2003) ‘The “balance of power” principle: nationality, politics and the distribution of organizational positions’, in Soderberg, A. and Vaara, E. (eds) Merging Across Borders: People,
Cultures and Politics, Copenhagen: Copenhagen Business School Press.
A very interesting discussion of the way in which senior managerial positions were distributed in
the creation of the Scandinavian financial services group Nordea.

References
Aguilera, R. and Dencker, J. (2004) ‘The role of human resource management in cross-border mergers
and acquisitions’, International Journal of Human Resource Management,15(8), 1355–70.

Belanger, J., Berggren, C., Bjorkman, T. and Kohler, C. (1999) Being Local Worldwide: ABB and the Challenge of Global Management, Ithaca, NY: Cornell University Press.
Bjorkman, I., Stahl, G. and Vaara, E. (2007) ‘Cultural differences and capability transfer in cross-border acquisitions: the mediating roles of capability complementarity, absorptive capacity, and social
integration’, Journal of International Business Studies, 38, 658–72.
Corteel, D. and Le Blanc, G. (2001) ‘The importance of the national issue in cross-border mergers’,
paper presented at a conference, ‘Cross Border Mergers and Employee Participation in Europe’, Ecole
des Mines, Paris, 9 March.
Edwards, P., Ferner, A. and Sisson, K. (1993) ‘People and the process of management in the multinational
company: a review and some illustrations’, Warwick Papers in Industrial Relations, no. 43, Coventry: IRRU.
Edwards, T., Budjanovcanin, A. and Woollard, S. (2008) ‘International mergers and acquisitions: how
can HR play a strategic role?’, CIPD Research Report, London: CIPD.
Edwards, T., Coller, X., Ortiz, L., Rees, C. and Wortmann, M. (2006) ‘How important are national industrial relations systems in restructuring in multinational companies? Evidence from a cross-border
merger in the pharmaceuticals sector’, European Journal of Industrial Relations, 12(1), 69–88.
Edwards T. and Edwards, M. (2014) ‘Employee voice and representation in the post-acquisition period:
Comparative and longitudinal evidence from an international acquisition’, Human Relations,
68(1), 131–156.

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Chapter 7 / Cross-border mergers and acquisitions

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EIRO (2001) Industrial Relations Aspects of Mergers and Takeovers. Available at: www.eiro.eurofound.
ie/2001/02/study/TN0102401s.html.
Faulkner, D., Pitkethly, R. and Child, J. (2002) ‘International mergers and acquisitions in the UK 1985–
94: a comparison of national HRM practices’, International Journal of Human Resource Management,

13(1), 106–22.
Ferner, A., Almond, P., Clark, I., Colling, T., Edwards, T., Holden, L. and Muller, M. (2004) ‘The transmission and adaptation of “American” traits in US multinationals abroad: case study evidence from
the UK’, Organization Studies, 25(3), 363–391.
Financial Times (2013) ‘France Telecom changes name to Orange’, 29 May.
Forsgren, M. (1990) ‘Managing the international multi-centre firm’, European Management Journal,
8(2), 261–7.
Gill, C. (2012) ‘The role of leadership in successful international mergers and acquisitions: why Renault
Nissan succeeded and DaimlerChrysler Mitsubishi failed’, Human Resource Management, 51(3),
433–56.
Habelian, J., Devers, C., McNamara, G., Carpenter, M. and Davison, R. (2009) ‘Taking stock of what
we know about mergers and acquisitions: a review and research agenda’, Journal of Management,
35(3), 469–502.
KPMG (1999) Unlocking Shareholder Value, London: KPMG.
Mayer, M. and Whittington, R. (2002) ‘For boundedness in the study of comparative and international
business: the case of the diversified multidivisional corporation’, in Geppert, M., Matten, D. and Williams, K. (eds) Challenges for European Management in a Global Context, Basingstoke: Palgrave Macmillan.
Meyer, K. and Lieb-Doczy, E. (2003) ‘Post-acquisition restructuring as evolutionary process’, Journal of
Management Studies, 40(2), 459–82.
Rees, C. and Edwards, T. (2003) The HR Implications of International Mergers and Acquisitions, CIPD
Research Report, London: CIPD.
Schuler, R., Jackson, S. and Luo, Y. (2003) Managing Human Resources in Cross-Border Alliances, London:
Routledge.
Stahl, G., Pucik, V., Evans, P. and Medenhall, M. (2004) ‘Human resource management in cross-border
mergers and acquisitions’, in Harzing, A. and Van Ruysseveldt, J. (eds) International Human Resource
Management, London: Sage.
Stahl, G.K. and Voigt, A. (2008) Do cultural differences matter in mergers and acquisitions? A tentative
model and examination. Organization Science, 19(1), 160–176.
Teerikangas, S., Stahl, G.K., Björkman, I. and Mendenhall, M.E. (2014) ‘IHRM issues in mergers and
acquisitions,’ The Routledge Companion to International Human Resource Management, London:
Routledge.
United Nations (2015) World Investment Report, New York: United Nations.

Vaara, E., Risberg, A., Soderberg, A. and Tienari, J. (2003) ‘Nation talk: the construction of national
stereotypes in a merging multinational’, in Soderberg, A. and Vaara, E. (eds) Merging Across Borders:
People, Cultures and Politics, Copenhagen: Copenhagen Business School Press.
Vaara, E., Sarala, R., Stahl, G.K. and Björkman, I. (2012) ‘The impact of organizational and national
cultural differences on social conflict and knowledge transfer in international acquisitions’, Journal
of Management Studies, 49(1), 1–27.
Vaara, E. and Tienari, J. (2003) ‘The “balance of power” principle: nationality, politics and the distribution of organizational positions’, in Soderberg, A. and Vaara, E. (eds) Merging Across Borders: People,
Cultures and Politics, Copenhagen: Copenhagen Business School Press.
Whittington, R. (2001) ‘What is strategy? And does it matter?’ Cengage Learning: EMEA.
Zou, H. and Ghauri, P. (2008) ‘Learning through international acquisitions: the process of knowledge
acquisition in China’, Management International Review, 48(2), 207–26.

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Part 3

The Management of
International HRM

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Chapter 8

Outsourcing and human resource
management
Virginia Doellgast and Howard Gospel
Key aims
The aims of this chapter are to:
●

provide background on outsourcing trends;

●

discuss the HRM issues and choices concerning international outsourcing;

●

examine the ways in which national institutions affect the costs and benefits of different
strategic choices by firms;

●

examine the particular challenges multinationals face as they seek to manage outsourcing
contracts across national borders.

Introduction
Outsourcing of various kinds has always existed, as firms put out work to suppliers, contractors and intermediaries to organize the production of goods and services. In recent years,
however, outsourcing has increased in both scale (the volume of outsourcing), scope (the
number of activities outsourced) and breadth (the geographical area across which outsourcing takes place). It has also spread from the private to the public sector where it goes along
with competitive tendering and privatization of services.
This growth in outsourcing has several related causes. First, new transportation systems,
such as container shipping, and new information and communications technologies (ICTs),
have facilitated the ordering, monitoring and delivery of products and services. Second, as
markets have extended and become more competitive, firms increasingly are seeking to save
costs through the possibility of paying lower wages, focusing on their core value-maximizing activities, and handing others over to contractors and suppliers. Third, management
fashion has played a role in popularizing networked production models, as firms watch and
imitate their competitors. Thus, managers may not always be absolutely sure that benefits
will exceed costs, but they feel that, if their competitors do it, then they also should. Fourth,
the relaxation of trade barriers, the emergence of new markets, and the expansion of a more
highly skilled labour force in Asia have increased the ease and cost savings of outsourcing to
these regions (IMF 2007; Oshri et al. 2011; OECD 2007a, 2007b; The Economist 2013).
While the volume of work outsourced has expanded in recent decades, there has also
been a recent trend of ‘insourcing’, as firms have brought work back in-house. This is said to
be driven by a realization that there are risks involved in outsourcing, quality may suffer, and

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